Snowbirds on deadline to clarify tax status

Have you heard the one about the Perimeter Security and Economic Competitiveness Plan? Yeah, the one with the new Entry/Exit Initiative?

Far from being the name of the very creative joke, it's a new agreement between the Canadian and American governments to share information on all entries and exits from both countries.

Among other things, it means both countries will know how long any particular snowbird has been visiting in the U.S. under their B-2 visitor visa. This will allow the U.S. government to enforce the six-month annual time limit allowed for visitors and to be aware of any Canadians who have a "substantial presence" in the U.S.

In rough terms, which I will explain later in detail, substantial presence means more than 121 or 122 days per year in the U.S. on average for the last three years. Any Canadian with that much time in U.S. must file Form 8840 with the U.S. government, to show a "closer connection" to Canada than the U.S., and the right to file only a Canadian tax return. Otherwise, the IRS will come looking for U.S. income taxes.

The deadline to file this form for the 2013 year end is June 15, 2014. Here's how you calculate whether or not you have a substantial presence in the U.S.

You count all the days you were in the U.S. in 2013, one-third of the days of presence in 2012 and one-sixth the number of days in 2011. If you had 31 days or more in the U.S. in 2013 and a total of 183 days during 2013, 2012 and 2012, based on the inclusion rates mentioned above, then you have a substantial presence. In this case, you must file the Closer Connection Form 8840.

If you spent more than 122 days each year, this absolutely applies to you, without even doing the calculation. That's the cut-off line, as illustrated here, for a person spending 123 days in each year:

-- 2013 -- 123 days (all count)

-- 2012 -- 41 days (one-third of 123)

-- 2011-- 20 days (one-sixth of 123)

This total is 123 + 41 + 20 184, which is over the 183 limit. Therefore, this person has a substantial presence and a filing requirement.

Many snowbirds have buried their heads in the sand about this issue, arguing they would never be caught. With the new automatic electronic information exchange at the border, I think those days are gone.

Having a substantial presence without proving a closer connection to Canada can cost tax dollars. However, staying more than the six-month limit allowed under the B-2 visitor visa in any one year can result in a person being banned from the U.S. This is something to take seriously.

Filing the Form 8840, the Closer Connection Exception Statement for Aliens, by June 15 will generally protect you from any obligation to pay U.S. taxes, as long as your closer connection is actually to Canada, making it your "tax home."

This form asks which country issued your passport, the location of your family members, car registration, social, religious and political organizations, where you are registered to vote, where you do business and your own opinion about your closer country connection.

The Form 8840 and related information can be located on the IRS website at www.irs.gov. The printable page is found at www.irs.gov/pub/irs-pdf/f8840.pdf

Once completed, the form is mailed to the Department of the Treasury, IRS Service Centre, Austin, TX, 73301-0215.

If you are a snowbird and have been putting off complying with this, I respectfully suggest that now is the time.

David Christianson, BA, CFP, R.F.P., TEP, CIM is a financial planner and investment advisor with Christianson Wealth Advisors, a vice-president with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.

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